Japan plans record spending to beat deflationary spiral

Japan said it plans record spending for the next fiscal year, as Prime Minister Shinzo Abe boosts spending on social security, defence and public works while trying to contain the growth of the world's biggest debt burden.

Japan said it plans record spending for the next fiscal year, as Prime Minister Shinzo Abe boosts spending on social security, defence and public works while trying to contain the growth of the world's biggest debt burden.

Government ministers and the ruling coalition adopted the 95.88 trillion yen (€731bn) budget proposal for the fiscal year which begins on April 1. Japan will issue 41.25 trillion yen of new revenue bonds, Finance Minister Taro Aso said, less than the 42.9 trillion yen earmarked in this year's initial budget.

Mr Abe aims to pull the country out of a 15-year deflationary malaise and cope with the rising welfare costs of its ageing population, while containing public debt that's more than twice the size of the economy.

His government has pledged to halve the primary balance deficit by fiscal 2015 and achieve a surplus by fiscal 2020.

"The government needs to show that it's moving in the right direction on fiscal discipline but this budget lacks punch," said Yoshimasa Maruyama, chief economist at Itochu Corp in Tokyo. "The government must cut spending to reach the planned target of a surplus in 2020."

The government "will simultaneously achieve the revitalisation of the economy and fiscal consolidation", Mr Abe said at a meeting of government ministers and the ruling coalition.

Japan's growth slowed for a second straight quarter in July-September, as the initial impulse of Mr Abe's reflationary policies, dubbed Abenomics, started to fade. While an increase in the sales tax in April will boost revenue, enabling the government to check bond issuance, it is forecast to push the economy into contraction. (Bloomberg)